promoting competition between firms. For instance, concerning the regulation of water utilities in the United Kingdom, Littlechild (1986) proposed a division of what could have been a single monopoly for the whole country into separate regional units. Provided the contracts for each unit, even if they fell below scheduled thresholds, were subject to international competitive bidding, there would be no violation of the GPA obligations. The payment to a single regional unit could then be based on the costs of other regional units. As long as there is no collusion and regional conditions are similar, this method offers the possibility of achieving the goals of both cost reduction and rent extraction. Good incentives for cost reduction exist because a firm keeps the benefits of its cost-reducing activities, since its price is linked to the cost performance of other firms. Rent extraction is accomplished if there is symmetry between firms, because industry prices are kept in line with industry costs.

V. Conclusions

This paper analyzed the provisions of the GPA, drawing insights from standard trade theory and recent developments in the economics of information and law. A central conclusion is that in a world where imperfectly informed procurers purchase from imperfectly competitive firms on behalf of imperfectly informed tax-payers, it is not easy to devise rules which would be optimal in all situations. Nevertheless, the non-discrimination provisions of the GPA seem to approximate closely those which would on average maximize global welfare. Despite this, the GPA may need to compromise on its basic non-discrimination disciplines. This would be out of the need to make its procedural and enforcement disciplines more widely acceptable in a world where there is a persistent desire to protect - regardless of economic merits.